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How to prepare Flexible budget?


Example: The budgeted expenses of 4000 units are given below and only 50% capacity is used:
Fixed expenses:
·         Overhead expenses Rs. 10, 000
·         Factory expenses Rs. 38, 500
·         Administrative expenses Rs. 40, 000
Variable Expenses:
·         Repair and maintenance charges Rs. 15 000
·         Labour cost @ Rs.3 per unit
·         Raw material cost @Rs.0.60 per unit
Semi-variable expenses:
·         Selling and distribution expenses Rs. 20, 000
·         Salary and wages Rs.16,800
 Fixed expenses do not change with changes in unit level. If 70% capacity is used then the expenses increases by 10% and if 100% capacity is used then variable expenses increases by 30%. Prepare flexible budget with the help of above information.

Solution:
Particulars
50% production capacity
70% production capacity
100% production capacity
Fixed expenses:



Overhead expenses
10, 000
10, 000
10, 000
Factory expenses
38, 500
38, 500
38, 500
Administrative expenses
40, 000
40, 000
40, 000
Total
88, 500
88, 500
88, 500
Variable expenses:



Repair and maintenance charges
15, 000
21, 000
30, 000
Labour cost
2, 400
3, 360
4, 800
Total
17, 400
24, 360
34, 800
Semi-variable cost:



Selling and distribution expenses
20, 000
22, 000
26, 000
Salary and wages
16, 000
17, 600
20, 800
Total
36, 000
39, 600
46, 800
Total cost
1, 41, 900
1, 52, 460
1, 70, 100

Working notes:
Variable expenses of repair and maintenance charges:
 For 70% capacity = (15,000/50)*70
= Rs. 21, 000
For 100% capacity = (15,000/50)*100
= Rs. 30, 000
Variable expenses of labour cost:
For 50% capacity = 0.60*4000 =Rs. 2, 400
For 70% capacity = (2, 400/50)*70
= Rs. 3, 360
For 100% capacity = (2, 400/50)*100
= Rs. 4, 800
Semi variable expenses (Selling and distribution):
For 70% capacity = 20, 000 + (20, 000*10/100)
= 20, 000 + 2, 000
= Rs. 22, 000
For 100% capacity = 20, 000 + (20, 000*30/100)
= 20, 000 + 6, 000
Rs. 26, 000
Salary and wages:
For 70% capacity = 16, 000 + (16, 000*10/100)
= 16, 000 + 1, 600
= Rs. 17, 600
For 100% capacity = 16, 000 + (16, 000*30/100)
= 16, 000 + 4, 800
Rs. 20, 800

Example: The budgeted expenses of 10, 000 units are as follows:
·         Selling and distribution expenses(15% fixed) = Rs. 5 per unit
·         direct labour (fixed expenses)Rs. 2 per unit
·         Maintenance charges (fixed20%) =Rs. 4.2 per unit
·         Wages and salaries (variable expenses)= Rs. 4.5 per unit
·         Office expenses (variable expenses) = Rs. 6 per unit
·         Raw material (fixed expenses) =Rs. 3.5 per unit
Prepare the flexible budget of 6, 000 units and 8, 000 units.

Solution:
Particulars
10,000 units
6, 000 units
8, 000 units
Fixed expenses:
(In Rs.)
(In Rs.)
(In Rs.)
Direct labour
20, 000
20, 000
20, 000
Raw material
35, 000
35, 000
35, 000
Total
55, 000
55, 000
55, 000
Variable expenses:



Wages and salaries
45, 000
27, 000
36, 000
Office expenses
60, 000
36, 000
48, 000
Total
1,05, 000
63, 000
84, 000
Semi-variable expenses:



Selling and distribution expenses
50, 000
33, 000
41, 500
Maintenance charges
42, 000
28, 560
35, 280
Total
92, 000
61, 560
76, 780
Total cost
2, 52, 000
1, 79, 560
2, 15, 780
Cost per unit (total cost /units produced)
25.2
29.92
26.97

Working notes:
Selling and distribution (10, 000 units):
Total cost = Rs. (5 * 10,000) = Rs. 50, 000
Fixed cost = 15/100 *50,000 = Rs. 7, 500
Variable cost = Rs. (50,000 – 7, 500) = 42, 500
6000 units selling and distribution (variable cost):
7, 500+ (42, 500/10,000)*6000
= Rs. (7,500+25, 500) = Rs. 33, 000
8000 units selling and distribution cost:
 7, 500 + (42,500 / 10, 000)*8000
 = Rs. (7,500 + 34, 000) = Rs. 41, 500
Maintenance charges (10, 000 units):
Total expenses = Rs. 4.2*10, 000 = Rs. 42, 000
Fixed cost = 42, 000*0.20 = Rs. 8,400
Variable cost = Rs. (42, 000 – 8, 400) = Rs.33, 600
Maintenance charges (6000 units):
8, 400 + (33, 600 / 10, 000)*6000
= 8, 400 + 20, 160
= Rs. 28, 560
Maintenance charges (8000 units):
8, 400 + (33, 600 / 10, 000)*8000
= 8,400 + 26, 880
= Rs. 35, 280















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